PDA

View Full Version : Please help me parse this Geithner quote...



jkjsooner
3/5/2009, 09:58 AM
“It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets,” Treasury Secretary Timothy Geithner said in a statement.

So we want to make housing more affordable and we do that by stopping the decline in housing prices? Huh?

This isn't a jab on Democrats as Paulson has said equally moronic things.

If it's about interest rates, well, sorry but low rates do not equal affordability. It might for a while but at some points rates rise and values either fall or affordability is again lost.

OUMallen
3/5/2009, 10:07 AM
Doesn't make sense to me. The housing market is NATURALLY making itself more affordable, mainly as a result of artificially inflated prices finally plummeting.

I don't understand why we don't get it: while the recession is obviously MORE of a drop than we want, there are lots of benefits to the consumer. PRices on EVERYTHING are dropping. Housing, consumer goods, money (through the interest rate), etc.

If you can avoid losing your job/income during this time, it's actually really pretty beneficial.

jkjsooner
3/5/2009, 10:20 AM
That's a big IF.

I don't understand how people don't see that high housing prices are severely damaging to our long term economic health. Sure, it's good for those who have owned for 10 years or more but if it isn't allowed to correct itself it will create an entire generation that is spending all of what would be discretionary income on mortgage payments. That means no trips Disney World or Best Buy....

OUMallen
3/5/2009, 11:40 AM
That's a big IF.

I don't understand how people don't see that high housing prices are severely damaging to our long term economic health. Sure, it's good for those who have owned for 10 years or more but if it isn't allowed to correct itself it will create an entire generation that is spending all of what would be discretionary income on mortgage payments. That means no trips Disney World or Best Buy....

It's not THAT big of an "if." The vast, vast majority of people will not lose their jobs. Don't listen to the media's sensationalism. The sky is falling a bit, yes, but it's not like most of us are going to miss any meals. Let's see, I think the height of unemployment in the Great Depression (correct me if I'm wrongs) was around 19%. 4-6% at any given time is considered healthy. I really doubt we get to almost 20% unemployment, but let's say we did, and that was a result of an additional 15% of people losing jobs. Obviously, that's pretty awful and hard to imagine, but still 15/100 = 3/20. I like my odds there of 85% keeping my job and I don't consider that a BIG "if."

You're 100% right on the latter. Somewhere in the mix, it's COMPLETELY FORGOTTEN that cycles are needed and healthy.

OklahomaTuba
3/5/2009, 12:06 PM
I don't know why someone like Geithner is spending time worrying about things like housing, banking, the economic collapse, etc, when we obviously have much more pressing issues to worry ourselves with, like dealing with Rush Limbaugh and the earff heating by 3 degrees over the next 200+ years.

ITS CALLED PRIORITIES PEOPLE!!!!!

sitzpinkler
3/5/2009, 12:17 PM
I assumed by "damaging spiral" he was referring to all the foreclosures happening across the country.

jkjsooner
3/5/2009, 01:25 PM
I assumed by "damaging spiral" he was referring to all the foreclosures happening across the country.

I could buy that but unfortunately they've also made too many references to stabilizing housing prices.

85Sooner
3/5/2009, 01:35 PM
Don't have a 4401 k or other retirement package eh? Destroying over 10 years of compounded savings is OK. Young people are really gonna be hurt because there are gonna be fewer people retireing in the near future.
Until this admin starts spewing some specifics everyone will be just sitting on the sidelines as the money goes down the drain.

Chuck Bao
3/5/2009, 03:30 PM
It's not THAT big of an "if." The vast, vast majority of people will not lose their jobs. Don't listen to the media's sensationalism. The sky is falling a bit, yes, but it's not like most of us are going to miss any meals. Let's see, I think the height of unemployment in the Great Depression (correct me if I'm wrongs) was around 19%. 4-6% at any given time is considered healthy. I really doubt we get to almost 20% unemployment, but let's say we did, and that was a result of an additional 15% of people losing jobs. Obviously, that's pretty awful and hard to imagine, but still 15/100 = 3/20. I like my odds there of 85% keeping my job and I don't consider that a BIG "if."

You're 100% right on the latter. Somewhere in the mix, it's COMPLETELY FORGOTTEN that cycles are needed and healthy.

You are probably right - the vast majority of us will likely keep our jobs. The unemployment numbers do not tell the whole story, though. It doesn't include underemployment, shorter work weeks, pay cuts, loss of employee benefits (such as family health insurance), etc.

yermom
3/5/2009, 03:36 PM
I could buy that but unfortunately they've also made too many references to stabilizing housing prices.

house prices need to fall. they were artificially high because of laxed lending and tax breaks

seems to me like saving up for a down payment like in the old days isn't such a bad idea

Frozen Sooner
3/5/2009, 03:38 PM
So we want to make housing more affordable and we do that by stopping the decline in housing prices? Huh?

Not necessarily a contradiction in terms.

If real median income improves, home prices can remain stable or even increase while still being more affordable.

Don't know if that's what he meant, though.

OUMallen
3/5/2009, 03:50 PM
I don't think he meant increasing median income...I don't know that I've heard ANYONE say that lately.

Frozen Sooner
3/5/2009, 03:53 PM
Like I said.

Just pointing out that it's not an inherent contradiction to stabilize housing prices while simultaneously making housing more affordable.

It could also be accomplished by offering either longer-term or lower-interest mortgages. Or by setting up down payment assistance programs. Or by making mortgage payments (not just interest) tax-deductible.

jkjsooner
3/5/2009, 08:46 PM
Like I said.

Just pointing out that it's not an inherent contradiction to stabilize housing prices while simultaneously making housing more affordable.

It could also be accomplished by offering either longer-term or lower-interest mortgages. Or by setting up down payment assistance programs. Or by making mortgage payments (not just interest) tax-deductible.


Let me address these one at a time.

1. Longer-term mortgages - There's a limit on how much that can do. There's actually not a huge difference between a 30 year mortgage and an infinite mortgage (paying only interest). For example, at 6% interest the payment (principal and interest only) on a 100k 30 year loan is about $600. For an infinite period it's $500.

Increasing the payment length is also a good way to create debt slaves.

2. Lower interest rates - At some point rates must rise so this isn't a long term solution. It might help those now but won't help those who buy in the future.

3. Down payment assistance and mortgage payments deductible - see #4 below.

4. All four above are a one-time fix. If successful, they will ultimately be translated into higher price for houses just as past "affordability" solutions (interest deductions/etc) have done.

Once you've done these things and, if successful, you are then stuck with higher cost housing and you can't roll back the "affordability" measures you've instituted.

We're there now. Easy lending and low interest rates led to a housing bubble and once you've got there you run out of options.


Not to get off-topic but I would guess that tuition assistance programs have, over the last 30 years, led to skyrocketing costs of higher education. As with any industry if you funnel money to it it will create inflationary pressures. Tuition help has been successful in giving most people an opportunity at a higher education but it has also resulted in graduates being suck with outrageous debt that was not imaginable years ago.


That's my conservative rant for the day. Tomorrow maybe my progressive side will come out.

AlbqSooner
3/5/2009, 09:26 PM
It doesn't include underemployment, shorter work weeks, pay cuts, loss of employee benefits (such as family health insurance), etc.

Not to worry about the family health coverage. Brack said we all gonna be covered by our benevolent Uncle Sam.;)
Of course if you think health care is expensive, just wait till you see how much it costs when it's free!

Harry Beanbag
3/5/2009, 11:23 PM
This country is ****ed. The government has reached the point of overburdening the people with taxes to fund its pet programs and kept on sprinting at light speed. You can't have government assistance for EVERY****INGTHING. It will not work.

Veritas
3/6/2009, 08:42 AM
Here, I've translated it:


I have no idea what the **** I'm doing.

Chuck Bao
3/9/2009, 04:57 PM
This article in the Sydney Morning Herald is largely about the ravings of a mad man. But, there is some truth to it.

I’m still pissed off about how the IMF and World Bank mistreated Asian countries during the Asian economic crisis, misdiagnosed the key issues, worsened the crisis multifold, unnecessarily wiped out a huge portion of wealth in the region and essentially set up the current crisis. It was all made even more bitter with the cheers of US banks and hedge funds who made a killing on betting against Asian currencies.

I have repeatedly vowed to hound and heckle the people who did this damage for the rest of their lives. Now, I find out that the key architect of this fiasco is none other than the newly-appointed Secretary of the Treasury, Tim Geithner.

Now, he gets a fresh chance to screw up everyone’s lives.

On the positive side, it looks like I won’t be the only one vowing to hound and heckle the dude for the rest of his life.

Confidence? Anyone?

http://www.smh.com.au/opinion/obamas-economic-saviour-savaged-as-keating-lets-rip-20090306-8rk7.html


Obama's economic saviour savaged as Keating lets rip
Peter Hartcher
March 7, 2009

When Barack Obama announced his champion to rescue the world from economic ruin, it was the first time most Americans had ever heard the name Tim Geithner.

The initial impression was good. The stockmarket surged and the pundits swooned. "Exactly a decade ago, he was Uncle Sam's golden-boy emissary sent into the stormy centre of what was then the world's worst financial crisis [the Asian crisis]," reported The New York Post.

The paper gushed: "Just 36 at the time, he'd been raised in Asia and knew the culture so intimately he scored successes and won confidences that other diplomats couldn't match. Geithner earned widespread plaudits for pulling together quarrelling Asian finance ministers into a $US200 billion rescue of their economies."

"A fantastic choice," said a Bank of Tokyo-Mitsubishi analyst, Chris Rupkey, as the Dow rose by nearly 6 per cent. Even one of Obama's political rivals, the hard-bitten Republican senator Richard Shelby, agreed Geithner was "up to the challenge".

If anyone in the US media had thought to ask a former Australian prime minister for his assessment, they would have heard a different view. And they would not have been so surprised at Geithner's performance since.

In a speech to a closed gathering at the Lowy Institute in Sydney on Thursday, Paul Keating gave a starkly different account of Geithner's record in handling the Asian crisis: "Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis."

In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.

Geithner thought Asia's problem was the same as the ones that had shattered Latin America in the 1980s and Mexico in 1994, a classic current account crisis. In this kind of crisis, the central cause is that the government has run impossibly big debts.

The solution? The IMF, the Washington-based emergency lender of last resort, will make loans to keep the country solvent, but on condition the government hacks back its spending. The cure addresses the ailment.

But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans - Thailand, South Korea and Indonesia - all had sound public finances.

The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind.

But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.

Keating continued: "Soeharto's government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power."

Exactly who was the "gigantic fool"? It was, obviously, the man who wrote the program, Geithner, although Keating is prepared to put the then managing director of the IMF, the Frenchman Michel Camdessus, in the same category.

Worse, Keating argued, Geithner's misjudgment had done terminal damage to the credibility of the IMF, with seismic geoeconomic consequences: "The IMF is the gun that can't shoot straight. They've been making a mess of things for the last 20-odd years, and the greatest mess they made was in east Asia in 1997-98, so much so that no east Asian state will put its head in the IMF noose."

China, in particular, drew hard conclusions from the IMF's mishandling of the Asian crisis. It decided that it would never allow itself to be dependent on the IMF, or the US, or the West generally, for its international solvency. Instead, it would build the biggest war chest the world had ever seen.

The solution? The IMF, the Washington-based emergency lender of last resort, will make loans to keep the country solvent, but on condition the government hacks back its spending. The cure addresses the ailment.

But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans - Thailand, South Korea and Indonesia - all had sound public finances.

The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind.

But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.

Keating continued: "Soeharto's government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power."

Exactly who was the "gigantic fool"? It was, obviously, the man who wrote the program, Geithner, although Keating is prepared to put the then managing director of the IMF, the Frenchman Michel Camdessus, in the same category.

Worse, Keating argued, Geithner's misjudgment had done terminal damage to the credibility of the IMF, with seismic geoeconomic consequences: "The IMF is the gun that can't shoot straight. They've been making a mess of things for the last 20-odd years, and the greatest mess they made was in east Asia in 1997-98, so much so that no east Asian state will put its head in the IMF noose."

China, in particular, drew hard conclusions from the IMF's mishandling of the Asian crisis. It decided that it would never allow itself to be dependent on the IMF, or the US, or the West generally, for its international solvency. Instead, it would build the biggest war chest the world had ever seen.

"This has all been noted inside the State Council of China and by the Politburo. And it's one of the reasons, perhaps the principal reason, why convertibility of the renminbi remains off the agenda for China, and it's why through a series of exchange-rate interventions each day that they've built these massive reserves.

"These reserves are so large at $US2 trillion as to equal $US2000 for every Chinese person, and when your consider that the average income of Chinese people is $US4000 to $US5000, it's 50 per cent of their annual income. It's a huge thing for a developing country to not spend its wealth on its own development."

Is this some flight of Keatingesque fancy? The former deputy governor of the Reserve Bank of Australia, Stephen Grenville, doesn't think so: "After the Asian crisis, the countries of east Asia decided that they would never go to the IMF again. The IMF is taboo in east Asia. Look at the evidence. The revealed preference of the region is that no one has gone to the IMF since, even when they needed the money."

And Asian capitals know that they have no real influence over the IMF - while European governments enjoy 40 per cent of the voting power on the IMF, Japan, China and the rest of east Asia put together have only about 16 per cent. This is an artefact of the immediate postwar power structure, when the IMF was set up.

Keating urges that the fund should be decapitated, with control passing to the governments of the Group of 20 countries whose leaders are to meet in London on April 2. The summit, which is to include China, India and Indonesia as well as Australia, is meeting to consider solutions to the global crisis.

As for The New York Post's claim that Geithner was the hero who cajoled those quarrelsome Asians into agreeing to a $US200 billion rescue, the key fact burned into the minds of Asian elites is that the US was deaf to requests for funds. Washington did not contribute a cent of its own money to any of the emergency packages. Japan and Australia were the only nations that made loans to all three of the stricken Asian countries.

Keating went on to argue that, by frightening the Chinese into building their vast $US2 trillion foreign reserves, Geithner was responsible for the build-up of tremendous imbalance in the world financial system. This imbalance, in turn, according to Keating, contributed to the global financial crisis which has since devastated the world economy.

China invested most of its reserves in US debt markets. Keating again: "So we have this massive recycling of funds into the system by [the former US Federal Reserve chairman Alan] Greenspan's monetary policy so even if you are greedy Dick Fuld [the former head of the collapsed investment bank Lehman Brothers] or you are hopeless Charles Prince at Citibank, you're being told there's an endless supply of money at a low interest rate and no inflation. So of course the system geared up to spend it.

"That is the fundamental cause of the problem - the imbalance is the fundamental cause."

If Keating's opinion of Geithner had circulated in the US, the Americans would not have been so surprised and disappointed with their new Treasury Secretary. They quickly learned that he had failed to pay $43,000 in taxes owing.

Then, when he announced his much-anticipated plan to rescue the US banking system, share prices slumped by 4 per cent immediately and a new round of weakness in the financial sector began. The pundits turned savagely against him: "So much for the saviour-based economy," wrote Maureen Dowd of The New York Times. Senator Shelby changed his mind: "Aggravating economic problems by contributing to marketplace uncertainty about what steps the Government will take - is that what this is?" he fumed.

US bank stocks weakened so much that nationalisation seems to be the only remaining option to put them quickly out of their misery.

Australia's banks, by contrast, are strong, said Keating, because of his decision as Treasurer to create the "Four Pillars" policy. This requires that the four big banks remain separate, barred from taking each other over. This prevented them "cannibalising each other", in Keating's words. As protected species, they had no need to mount risky takeovers to bulk themselves up defensively.

Their strength certainly wasn't due to the brilliance of their managers, whom Keating described as "counterhopping clerks" who had managed to work their way up the bank hierarchies. A further source of the soundness of the Australian banks, he said, was that they had learned well the lessons of risky speculative lending as a result of "the recession we truly did have to have".

In sum, Tim Geithner is a gigantic fool, the IMF the gun that can't shoot straight, Alan Greenspan a bungler. The big US banks were run by the greedy and the hopeless, the Australian banks by counterhopping clerks. It's a world of many villains. And only one hero.

Peter Hartcher is the Herald's political editor.

Jerk
3/10/2009, 12:48 PM
I think one of the biggest reasons the gov't is so desperate to keep home prices artificially high is because they don't want to lower the property taxes.

But that's just me.